Stocks End Week of Jitters on High Note

The major stock averages rebounded from a four-week losing streak after the U.N.'s chief weapons inspector indicated Iraq is cooperating

Stocks rallied into the market close Friday, breaking a four-week losing streak, after chief United Nations weapons inspector Hans Blix told the U.N. Security Council that Iraq has so far cooperated with all inspections.

The Dow Jones industrial average soared 158.90 points, or 2.05%, to 7,908.80. The broader Standard & Poor's 500-stock index added 17.52 points, or 2.14%, to 834.89. Meanwhile, the tech-laden Nasdaq composite index gained 32.73 points, or 2.56%, to 1,310.17, driven by Dell Computer's (DELL ) healthy earnings report.

For the week, the Dow finished up 0.5%, the Nasdaq gained 2.1%, and the S&P added 0.6%. S&P MarketScope notes that trading volume was light Friday, as bearish traders booked short-side profits ahead of the three-day weekend. The markets will be closed Monday in observance of the Presidents' Day holiday.

On Friday, chief U.N. weapons inspector Blix said inspections should continue on an open-ended schedule, and that while some weapons are unaccounted for, the only problem thus far concerns a certain type of missile that can fly further than the range allowed under a U.N. resolution. Blix says Iraq could further assure total disarmament by allowing top Iraqi scientists to provide testimony.

Blix acknowledged that secret intelligence seems to suggest that Iraq is still hiding weapons. But he cast doubt on U.S. suspicians that Sadaam Hussein is constantly moving secret weapons ahead of the movements of U.N. inspectors. Blix also said new technology, including aircraft night-vision equipment, should vastly increase the inspectors' capability.

The speech by Blix amounted to a setback to U.S. foreign policy and U.S. Secretary of State Colin Powell, who, in a harsh rebuttal, told the Security Council that Iraq is flouting the spirit of the U.N. resolution by not lining up its top scientists for open interviews on the country's weapons capability. "We cannot wait for one of these terrible weapons to show up in one of our cities," Powell said. "To this day we have not seen the level of cooperation we had hoped for."

Fear of war with Iraq has been overshadowing everything else in the markets. The crisis has caused a spike in crude oil prices to $36.90 a barrel this week from $22 a barrel last March. And the malaise in the U.S. economy has pushed the value of the U.S. dollar to a four-year low vs. the euro.

A conflict with Iraq, combined with President George W. Bush's plan to cut taxes, will increase the U.S. budget deficit to a record $375 billion in 2003, according to Goldman Sachs, one of the 22 firms that trade with the Federal Reserve. The U.S. must attract about $1.4 billion in foreign investment a day to offset the shortfall in its current account, which measures international trade, Goldman reported. That's very unlikely.

Friday's economic news was mixed. Business inventories, a gauge of future consumer demand, rose 0.6% in December, the eighth straight month of gains, the Commerce Department reported. However, the University of Michigan consumer sentiment survey fell from 82.4 in January to a nine-year low of 79.2 in February. "U.S. consumers are not very happy," says the Bank Credit Analyst.

"For a second consecutive month, inventories outran business sales in terms of monthly growth rates," said Moody's John Lonski, senior economist for Moody's Investors Service. "When inventories outpace sales, near-term business prospects worsen."

On a brighter note, the Federal Reserve reported that U.S. industrial production rose 0.7% in January, led by a 4.9% gain in vehicles and parts production. Utilities rose 4.0%. However, December production was revised lower to -0.4% from -0.2%. Capacity utilization rose to 75.7% from a revised 75.2% (75.4% previously). The headline data was stronger than expected, says economic research outfit MMS International.

By Friday, there was little corporate news left to be released, and the terrorism fears that spooked investors Thursday morning appeared to have subsided.

Technology shares got a boost Friday from the latest earnings update from Dell Computer (DELL ). After the closing bell Thursday, Dell reported record revenue and operating profit in its fiscal fourth quarter, meeting analysts' estimates. The stock climbed more than 6% in early trading Friday.

Hospital stocks got slammed, however, following Fulcrum Global Partners' downgrade of the group on word that the respected chief financial officer of Universal Health Services (UHS ) will step down amid questions about the company's financial reporting. Shares of Universal Health plunged 18%. Generally, for-profit hospital chains have been plagued by persistent investigations into their billing practices.

In other news Friday, AOL Time Warner (AOL ) abandoned efforts to merge CNN with Disney's (DIS ) ABC News, concluding that the venture would be too complex to run.

And Biogen (BGEN ) revised downward its 2002 profit to reflect a previously announced payment of $55 million to settle a patent-infringement suit.

Earlier in the week, American International Group Inc. (AIG ), the world's largest insurer, lost $103.8 million in the fourth quarter after setting aside $3.2 billion to boost reserves needed to pay claims. But the company raised its earnings guidance.

McDonald's (MCD ) posted disappointing same-store sales. And Office Depot (ODP ) was cautious about 2003, and now projects earnings of $1.03 to $1.08 a share for the year, below analyst forecasts.

And General Motors (GM ) earlier this week fell on speculation that GM may reduce its dividend on lower free cash flow and higher pension costs. The stock is down 30% for the year. Banc of America Securities issued a sell rating on the stock Wednesday.

Coinciding with these earnings releases, Greenspan spent two days on Capitol Hill testifying before Congress on the health of the economy. "Chairman Greenspan's testimony to Congress reiterated the Fed's belief that the current sluggish growth is caused by geopolitical risk," said Standard & Poor's David Wyss in his Friday notes. "The statements tended to undercut President Bush's push for a huge stimulus package."

No major company news is expected Monday, which is Presidents' Day. However, Tuesday brings the expected release of Wal-Mart's (WMT ) earnings.

In addition, investors can expect several economic data releases next week. On Wednesday, housing starts are expected to slow a bit to 1.75 million units on an annual basis in January after rising 5% in December to a 16-year high, economists say.

On Thursday, the producer price index (PPI), a measure of inflation at the wholesale level, should rise 0.4% in January on higher energy prices, says. Also Thursday, weekly jobless claims are expected to increase slighly, and the Commerce Dept.'s trade gap is expected to narrow slightly in December after widening to a record $40.1 billion gap in November.

The leading index of economic indicators is expected to be unchanged for January when it's released Thursday. And on Friday, the consumer price index (CPI) should show a 0.3% rise in January as gas sales ticked higher, says.

Treasury Market

Treasuries fell in price as stocks headed higher. The markets will be closed Monday in observance of the Presidents' Day holiday.

World Markets

European stocks rose, paced by banks, after Fortis raised its recommendation on ABN Amro Holding NV. And Infineon Technologies AG climbed after Dell Computer said sales this quarter will exceed analysts' forecasts.

London's FTSE index was up 1.1 points, or 0.03%, to 3611.90, while Paris' CAC 40 index climbed 69.10 points, or 2.50%, to 2827.75. Credit Lyonnais SA said Friday that its fourth-quarter net profit tripled as the French bank squeezed costs and slashed loan-loss provisions.

In Frankfurt, the DAX index was up 119.19 points, or 4.66% to 2,674.46.

In Asia, stocks ended higher. On Friday, the Nikkei 225 index jumped 102.26 points, or 1.19%, to close at 8701.92. Hong Kong's benchmark Hang Seng climbed 28.33 points, or 0.31%, to 9,201.76.

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